Dupont Fabros Technology, Inc. (DFT)

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DuPont Fabros Technology, Inc. (DFT)

Q2 2010 Earnings Call Transcript

August 4, 2010 10:00 am ET

Executives

Chris Warnke – IR Manager

Hossein Fateh – President and CEO

Mark Wetzel – EVP, CFO and Treasurer

Analysts

Brendan Maiorana – Wells Fargo

Jordan Sadler – KeyBanc Capital Markets

Ross Nussbaum – UBS

Chris Lucas – Robert Baird

Bill Crow – Raymond James

Sri Anantha – Oppenheimer

Srikanth Nagarajan – FBR Capital Markets

Rob Stevenson – Macquarie

Dave Rodgers – RBC Capital Markets

John Stewart – Green Street Advisors

Jonathan Schildkraut – Evercore

Romeo Reyes – Jefferies & Company

Mark Montana – Citi

Michael Bilerman – Citi

Jonathan Atkin – RBC Capital Markets

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the DuPont Fabros Technology second quarter 2010 earnings conference call. One note, that today's call is being recorded.

At this time, I would like to turn the conference over to Chris Warnke, Investor Relations Manager of DuPont Fabros. Please go ahead, sir.

Chris Warnke

Thank you. Good morning, everyone, and thank you for joining us for DuPont Fabros Technology's second quarter 2010 results conference call. Our speakers today are Hossein Fateh, the company's President and Chief Executive Officer, and Mark Wetzel, the company's Chief Financial Officer and Treasurer.

Certain matters discussed during this conference call may constitute forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to certain risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.

Additionally, this call contains non-GAAP financial information, of which explanations and reconciliations to net income are contained in the company's earnings release issued last night, which is available in PDF format in the Investor Relations section of the company's corporate website at www.dft.com.

To manage the call in a timely manner, questions will be limited to two per caller. If you have additional questions, please feel free to return to the queue.

I will now turn the call over to Hossein.

Hossein Fateh

Thank you, Chris, and good morning everyone. Thank you for joining us on our second quarter earnings call. As noted, in last night's press release, we again delivered a solid quarter of operating results. These results exceeded the midpoint of our second quarter guidance by $0.025 cents of FFO per share. For this quarter, our FFO was $0.33 per share as compared to $0.28 per share a year ago. We are raising our 2010 full-year FFO guidance range.

Mark will walk you through the details later in the call.

In the second quarter of 2010, we signed eight new leases and renewed one lease. The eight new leases included four Internet tenants, two enterprise tenants, and two reseller tenants. As always, all the leases are triple net. The weighted average lease term of these leases are 9.2 years. Three of the leases are with new tenants and five are with existing tenants. Five of the leases commenced in the second quarter of this year.

None are expected to commence in the third quarter. Two are expected to commence in the fourth quarter and one in the first quarter of 2011. These commencements can begin earlier if tenants request early access, which occurred with three of the leases that commenced in the second quarter. So far in the third quarter we have signed one new lease and one lease renewal. The new lease is our first pre-lease in New Jersey, representing 6.25% of the building. This lease is with an existing tenant from our Virginia market and is a financial reporting tenant. Lease commencement is expected in the fourth quarter of 2010, within a 10 year – with a 10-year lease term.

The additional incremental revenue expected on all executed and commenced leases will be 1 million in the third quarter and 6 million in the fourth quarter, as compared to our second quarter results. We will have approximately 40 million of additional incremental revenue on already executed leases with the full year 2011, as compared to 2010. As a reminder, we have no leases expiring in 2010. We have one lease with a government tenant Systems Integrator that has an early termination option at the end of third quarter 2011. This lease has a rolling six-month termination notice starting in the third quarter of 2011.

Our top three tenants, Microsoft, Yahoo, and Facebook now represent 59% of our annualized base rent as of the end of the quarter. At the end of second quarter 2010, Microsoft and Yahoo represented 44% of our annualized base rent compared to 86% at the IPO. We expect to deliver and open both ACC5 Phase II development in Ashburn, Virginia, and New Jersey Phase I development in Piscataway, New Jersey, in the fourth quarter of this year. Both will be on time and on budget.

ACC5 Phase II is 88% pre-leased as of today. We expect to be 100% leased by the end – by year end. Based on our cost to complete and anticipated rents, we expect to exceed a 15% unlevered return on both phases of ACC5. NJ1 is 6.25% pre-leased as of today, and we continue to expect to be fully leased within 24 months of opening.

Our pro forma assumption is 12% unlevered return. Traffic and tours remains solid and we continue to be optimistic on leasing. During the second quarter, we raised sufficient capital to fund the next stage of our growth. The secondary common stock offering completed in May raised just over 305 million. During the same months, we also closed on an $85 million line of credit, which was discussed in Q1 call. With these – with these available funds, we have restarted the Santa Clara project and started Phase I of ACC6 in Ashburn, Virginia. We are fully funded to complete these projects. These two data centers will add another 26% to our current per megawatt operating portfolio. We expect construction for each of these projects to be completed in the third quarter of 2011. We have our construction teams onsite at both locations.

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